The currency strengthened after the Fed officials signaled the need for interest-rate cuts as credit market tightness and subprime mortgage losses threatened global growth. The Bank of Canada on Sept. 5 kept its borrowing cost unchanged at 4.50 percent. The Federal Reserve's overnight lending rate is 5.25 percent and interest rate futures trading indicates a 46 percent likelihood policy makers will cut that to 4.75 percent when they meet Sept. 18.
Canada's dollar rose 0.8 percent, the most since Aug. 23, to 95.79 U.S. cents at 9:13 a.m. in Toronto. One U.S. dollar buys C$1.0439.
Federal Reserve Governor Frederic Mishkin said late yesterday in New York that ``heightened uncertainty'' in markets could hurt consumers and San Francisco Fed President Janet Yellen said demand is under ``downward pressure.''
The yield on Canada's benchmark 10-year bond rose 2 basis points, or 0.02 percentage point, to 4.29 percent. The price of the 4 percent security due June 2017 fell 19 cents to C$97.71. Bond yields move inversely to prices.
The difference in yield, or spread, between the benchmark 10-year U.S. Treasury and its Canadian counterpart was 5 basis points, near the lowest since May 2005.
By Haris Anwar (Bloomberg)